Question

How do taxes impact your accumulation? Why are marginal tax rates important instead of average?

What rate should you use for an expected return?

Answer 1

Solution:

Explaining about the Taxes Impact Your Accumulation:

When the Government (State or Federal), keeps the Larger Amount of Your Income, it will take the Longer Time to Accumulate the One Million Dollars. There are More Options available that will Save atleast the Portion of the Amount of your investment income from Taxes until your time of Retirement. Tax deferred includes the Individual Retirement Accounts (IRAs) and Most of the Pension Plans.

Explaining about why are Marginal Tax Rates important Instead of Average:

The most of Critical Part of the Tax is Marginal Tax, that has to be Considered on any of the Investment Opportunity. The Government doesn't take the Average Tax out of income but it takes the Maximum of the Marginal Tax. For taking any Financial Decision, the Marginal Tax plays an important role.

Explaining about the Rate should you use for an Expected Return:

The Rate that you should used for an Expected Return will depends on where you investing your money. According to the Risk and Return Tradeoff, you will earn a Higher Return when you invest your Money at highest Risk. The Risk involves with your Personal Tolerance of the Risk.